Is Elon Musk’s ‘no brainer’ deal about to create a one-stop-shop for clean energy?

Elon Musk at TED2013: Photo: James Duncan Davidson

Elon Musk on Tuesday sought to build a clean energy powerhouse as his electric car maker, Tesla Motors, made an offer to buy his solar installation firm SolarCity in a stock deal worth as much as $2.8 billion.

If the deal goes through, Musk will be able to create a one-stop-shop for cleaner energy with SolarCity adopting the Tesla brand, it will sell its solar panels alongside Tesla’s PowerWall home batteries to store electricity created during the day for when it is needed at night.

Musk, who is the largest shareholder of both companies, described the deal as a “no brainer”. The company could sell customers an electric car, a home battery and a solar system all at once, he said.

“Instead of making three trips to a house to put in a car charger and solar panels and battery pack, you can integrate that into a single visit,” Musk told reporters.

“It’s an obvious thing to do.”

Under the terms of the proposed deal, published in a blog post, Tesla would acquire all of SolarCity’s outstanding shares of common stock.

The goal, Tesla said, was “the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers.”

It would seem that Tesla’s idea behind the ‘mega-merger’ is to create a clean-energy juggernaut. The electric car manufacturer outlined its vision in a post:

We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered.

With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimising your dependence on fossil fuels and the grid.

Tesla also talked up possible ways the two companies might benefit from a merger:

We would be able to maximise and build on the core competencies of each company. Tesla’s experience in design, engineering, and manufacturing should help continue to advance solar panel technology, including by making solar panels add to the look of your home.

Similarly, SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing products would significantly benefit Tesla and its customers.

Musk, who owns 19 percent of Tesla and 22 percent of SolarCity, said he would abstain from voting on the deal since he sits on the boards of both companies.

Both companies have announced recent financial losses. Tesla has lost $1.2bn in the past two years while SolarCity, which is the largest solar installer in the US, has suffered losses exceeding $1.1bn during the same period and has about $6.24bn in liabilities, including debt.

It would seem that the news of the potential merger hasn’t gone down to well with investors, however.

Since the announcement Tesla investors have punished the company’s shares, which have plunged more than 13 percent – amounting to a loss in value of about $4.3 billion, or more than the value of the offer for the other company. Shares of SolarCity rose about 18 percent to $25.02.

“Ideally you want to see Tesla focus on Tesla – building Teslas and expanding the cars,” said Ivan Feinseth, an analyst at Tigress Financial Partners, in an interview with Reuters.

“Maybe the feeling is that this takes away focus, and it could financially strain Tesla, which is going to continually need a lot of cash.”